New stadiums – taking from the old and sick and giving to millionaires

When cities, counties, or states agree to help pay for a new stadium, whether via direct financing, tax breaks, or taxes to directly pay for them, all government groups are actively deciding to use their scarce resources to further millionaires at the expense of the young, old, sick, and the poor. When new sport stadiums are financed with public money, research has shown that the population is actually worse off economically than before the stadium. This flies in the face of the argument that stadium proponents advance, mainly that a new stadium brings new jobs and economic expansion.

Let’s look at the costs and benefits from a new stadium from both the perspective of the team, and of the “public.” As you can see, the team has many of the high-revenue benefits, and they should because they are the ones entertaining fans, paying athlete salaries, and in general competing against other teams and forms of entertainment. The public has benefits also, yet most of these benefits, as shown below, are simply re-distributions of existing taxes and benefits. However, you see that many of the costs to the public are long-term in natures, with very high fixed costs, while the costs to the team are variable costs, and can be limited if things go badly. Additionally, many city negotiators are either politically motivated to give the teams a good deal, or simply inept.

Costs and benefits for differing stakeholders

This leads to long term contracts and leases that allow the team to move to richer pastures, even after years in a single city. As a resident of Seattle, we recently had the Seattle Sonics basketball team move after a new stadium was not built. Also, both our NFL and MLB teams had threatened to move without new stadiums. Seattle destroyed a multi-use stadium that was still being paid for, and ended up build two new stadiums. This led directly to additional taxes on restaurants and bars, among other taxes, most of which were paid by residents, not visitors to the city.

Let’s look at the two arguments and see what seems more credible.

We’ll start with the stadium proponents

Their argument is that building the stadium and staffing the stadium will bring new jobs and economic expansion, where restaurants and bars will see more business, and the city will draw more tourists and business people. Think of a new LA stadium that would host some new LA football team. That is a huge market, but would people go to LA that didn’t before? I don’t think so.

In reality, research has found, and common sense verifies, that consumer spending on sports is fairly constant, and that the spending simply substitutes for other forms of entertainment spending, whether a new baseball team draws primarily from an existing football team or existing concerts and dining, the amount of money in the community is fairly steady. The reason is the revenue from the sports teams, whether new or existing, tend to have very low multipliers. This means that the money goes to wealthy athletes who generally spend a lower percentage of their income than middle and low income earners in the community, so the money doesn’t get passed along. There are obvious exceptions, but because of the few people involved who make the bulk of the earnings, most of whom don’t live in the city they play, there is little additional economic activity.

Much like the revenue going to wealthy athletes, restaurant and bar spending isn’t really increasing across the community because of a new sports stadium, at best it is simply moving from other restaurants and into the locations around the stadium on game days as patrons shift their spending habits.

Finally, since public funding of stadiums usually results in higher car rental taxes, restaurant sales tax, and hotel taxes, many of those out of town tourist, business travelers, and conventioneers will be faced with the decision of coming to your city with a brand new ball club and paying these higher taxes, or choosing a cheaper alternative. Looking at this from the perspective of the visitor, the new sports team may actually lead to a decrease in visits from out of town travelers because of the higher costs, with the possible exception of those sports-related tourists.

And the stadium opponents:

Century Link stadium, home to NFL team Seattle Seahawks

Basically all these people see is the trade-off of public funds from those needing government services to those billionaire team owners and millionaire athletes. They see the pubic being put over a barrel when a team demands new revenue opportunities or renegotiated leases, where the sports team will flee town for richer fields whenever possible. Tax breaks or special bond financing through revenue from the new stadium, all create funding problems for the municipalities. Traffic and infrastructure problems persist long past construction. History and research has generally shown these people to be correct. So with the overwhelming benefit of logic and fact on their side, why do so many new stadiums get public funding, either in part or in whole?

The politicians:

Seattle City Council in Chambers, 2003 (Seattle Municipal Archives)

The fear of losing a sports team, and the votes of sports fans, have caused local officials to blink time and time again and to waste public monies to buy the votes of the vocal and organized few, versus the best interests of the largest portion of their constituents.

Thus we can see why public money is eagerly donated. The full costs of a stadium and the damage it does to communities are often years in the future, long after the politician is known for being the hero that save our local team and has moved on to bigger and better things, now with the campaign funding of the very teams that they built homes for and the fans who continue to pay. A bit of political quid pro quo in action I think.

Readers, what do you think about publicly funded stadiums? Ever had a team leave? How do you feel about paying taxes on a stadium you don’t visit or for a sport you don’t like?

18 Responses to New stadiums – taking from the old and sick and giving to millionaires

I have to say that I liked the Kingdome. Is that blasphemy? Safeco Field is awesome though (have you ever gotten into diamond club seats? If given a chance jump on it man. Jump!). I never understood why we had to have 2 stadiums right next to each other…if kids can play football and baseball on the same field why can’t the big boys?

I thought the kingdome was just fine also. Granted, it wasn’t as nice as the two stadiums we have now, but if you think about the 10 years of additional sales taxes, there are people that have paid hundreds of dollars and never attended a single game.

This post is really interesting. I live in Kentucky, where basketball is a religion, and UK’s Rupp Arena is about to undergo a $300 million renovation. Obviously a college team isn’t going to leave town, but now I’m thinking about all the people who could be helped with that kind of money.

That’s the thing. With all the debt financing and resulting tax revenue that goes to cover the debt payments, or the dedicated taxes from other options, could easily feed the hungry, help battered women, and provide shelters for sick dogs and cats. It is an active choice to instead spend tax money building an arena where millionaire athletes compete so that billionaire owners can hoist a trophy. Strange choices. If money is to be made, the private sector will deal with it without the government handouts.

I’m not too sure if this really applies to Canada or not, but perhaps. Our stadiums are usually sponsored by a company – Rogers, etc – and they help build and pay for them. Not completely, but some of them. I know the governments do help out though.

There is always the right place and the right time for building a stadium. I don’t think that a stadium is a necessity during economic downturns. However, if the economy is great, governments have surpluses in the budgets, then it might be a good idea for consideration. I think the answer is “it depends.” 🙂

I don’t know Aloysa, my view of corporate wellfare is not positive. Most of the research over the last 10-20 years have shown that new sports stadiums don’t bring in any more money, and depending on the negotiation skills of the city\county\state, can be a horrible deal for taxpayers (Cincinnati has this problem right now, basically owning a stadium that receives no revenue from the team playing there.)

Good article, Karl! No local politicians wants to be remembered as being the goober that lost the major league sports franchise. Much easier to dip into public funds and sell the sizzle of the new stadium as an economic boon. Bread and circuses, indeed!

Interesting post on new stadiums and their economic impact. As a big sports fan I am pretty biased towards new stadiums being a positive thing. Maybe I’m just drinking too much of the teams’ koolaid. I don’t think that all new stadium deals are necessarily bad. Some might be a waste, but others probably really help the local economy. I know a lot of people up here in BC head down to Seattle specifically to watch the Seahawks or Mariners. The problem is that it is difficult to judge the true benefits of a new stadium. For example, how do you factor in increased gas/restaurant/hotel sales in a wide area around the stadium across the whole state? Or what about all the other random expos and events that get held in the stadium bringing in international visitors? I’ve personally gone on a California road trip with the explicit plan of checking out several hockey games featuring my home team.

Jeremy, I think that most of the research says that the economic benefits of the stadiums are very limited, and mostly due to substitution effects (e.g. I go to a hockey game and eat down by the arena instead of going to a local restaurant and seeing a baseball game). I’m not saying all stadium deals are bad, just that when public money is used, the explicit decision being made is to support a playground for very well paid athletes at the direct detriment of those who generally use and need government services.

As for bringing in visitors, as mentioned above the taxes used to finance stadiums are usually levied on out of town guests were possible (hotels, car rentals, restaurant taxes, etc.) and when conventions and expos are choosing cities, they take taxes into account and may in fact steer to another cheaper venue. If you want to attract conventions, build a big convention hall, have easy access from an airport, and have low hotel rates and taxes.

And don’t think I’m not a sports fan either. I love to watch the teams play, I just can’t in good conscience support policies that take support for free food to the poor and instead pay debt service on a stadium.

Some arena deals are definitely a bad deal for the city. For example with the Phoenix Coyotes they are being funded by the city each year while the team loses money.

The problem with these kinds of studies is that they are usually funded by a group that benefits from a certain viewpoint. So they can ignore some parts of the equation such as down turns in the economy or other spinoff benefits.

There would be some substitution effect for sure, but still there would be out of town visitors coming specifically for that stadium. Most major sports team have at least some kid of following. When I did the hockey road trip it was amazing how many fellow out of town fans were there. In Phoenix there were actually more fans for the road team.

Plus if the team succeeds, they act as a big marketing gimmick for the city. If the city name gets mentioned in the news more, it may attract more investment and tourism.

This is an interesting debate which I might have to make my own post about. So I guess you are against a new possible NBA arena in Seattle?

I am against a new publicly funded arena. What details I have heard so far are that the new arena for basketball & hockey in Seattle would be entirely self-funded by taxes that wouldn’t be available without the arena. If that is in fact true, then I’m generally supportive. What I don’t believe is the number of jobs or visitors that would be created. Yes, there is some team fans that travel well, but if the point is to attract tourist, I would say there are numerous other ways that would be more effective. You also forget what happens when the teams do poorly. Right now, the Seattle Seahawks and mariners are in rebuilding phases, and the Sonics left town. I really dislike the protection-like extortion that is allowed by cities with the professional sports teams.

I live in San Diego, and it’s has been fairly obvious in the news that the Chargers are unhappy with their current stadium, and they want the city to build them a new one. I’m a huge Chargers fan, but threatening to leave your city (and your fans) seems like it’s giving everybody who supports your team a big black eye. Particularly in an economy like we have today (perhaps I’d feel differently in “flush” times), it seems really greedy and unreasonable to basically demand a new stadium. It makes me sick (though, part of that sickness is seeing the Chargers have great potential and squander it, but that’s a different story).

Yeah, all the professional sports employ an extortion plan when trying to get public money for their own pockets. It really is a problem, but again, looking at it between a millionaires play-field or reduced cost of care for the sick and elderly, if stadium opponents put it in these terms, I don’t think you’d see nearly as much going to stadiums. Good luck with the Chargers, it’s been a while since the NFL moved a team.

[…] documents in order.And here’s one I had a bit of a debate over with Karl from Cult of Money: New stadiums – taking from the old and sick and giving to millionaires. He makes a lot of good points about the negative side of using tax payer money to finance new […]

I think using public money for private interests is moronic. I also think that sports in general are not culturally rich, or inspiring. Low income housing and the common good should be more important than shallow entertainment. Then again people in the first world have is so good, nobody will ever be motivated to change the selfish, self-serving status quo that the politicians and the rich have created.

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